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In Porter II, the Tax Court held that it would apply a
de novo standard of review in innocent spouse cases (that is, it
would weigh the evidence anew), rather than merely reviewing IRS
administrative determinations for abuse of discretion. Earlier, the
Tax Court had held that it did not have to limit itself to the
evidence in the IRS administrative record, but could conduct a trial
de novo in innocent spouse cases (Porter, 130 TC 115
(2008) (Porter I)).

The
IRS objects to the holdings in both of these cases. The Service
maintains that the proper standard for review in innocent spouse
cases is abuse of discretion and, therefore, that the scope of
review should be limited to issues and evidence presented to the IRS
examiner or Appeals officer (that is, the administrative record).

The
memo instructs IRS attorneys to raise the scope and standard issues
in all innocent spouse litigation and to note the Service’s
disagreement with the Porter decisions. Attorneys
are directed to attempt to get taxpayers to stipulate to the
evidence in the administrative record and to object at trial if the
taxpayer wishes to introduce evidence from outside that record.

If
the court admits evidence from outside the IRS administrative
record, the memo instructs IRS attorneys to make a three-part argument:

Based
solely on the administrative record, the IRS did not abuse its
discretion in denying relief;

Even
considering the new evidence introduced at trial, the IRS did
not abuse its discretion in denying relief;

Even
if the proper standard of review is de novo, the taxpayer has
not established his or her eligibility for relief under IRC § 6015(f).

The
IRS has also set up an expedited procedure for making innocent
spouse relief determinations in cases in which the issue was not
determined during the IRS examination (for example, where the
taxpayer first raises the issue in a Tax Court petition). In such
cases, the IRS attorney should ask the IRS’ Cincinnati Centralized
Innocent Spouse Operations (CCISO) to make an expedited innocent
spouse determination.

If
the CCISO determines relief is appropriate, the IRS will concede the
case. If the CCISO determines relief is not appropriate, this
determination will be filed with the Tax Court. If time permits (and
the taxpayer requests Appeals consideration), the case will be
referred to Appeals for review.

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